Wednesday, 2 November 2011

Laughing Stocks

There is a book coming out in the near future, titled Laughing At Wall Street, with the not so catchy sub-title How I Beat the Pros at Investing (by Reading Tabloids, Shopping at the Mall, and Connecting on Facebook) and How You Can Too. 

It’s written by a man from Dallas, Chris Camillo, who invested $20,000 in the stock market in 2007, and turned it into more than $2 million over the next three years – no mean feat at the best of times, never mind over three years during which most portfolios lost value. 

The 37-year-old amateur investor attributes this success to his knack for identifying trends and spotting opportunities before Wall Street. His logic is essentially that the core demographic of Wall Street is male, middle-aged, wealthy and lives in or near a city, and is thus slow to pick up on female, youth, lower-income or rural trends. By having a more diverse group of acquaintances, it is possible to have an edge over the stock market professionals who have a narrower social life.

A couple of examples of his success are Guitar Hero and the Wii, and he tells of standing in a line of 150 people in a retail store on the day a new line of clothing was launched and seeing every piece sell out within two hours. 

Apparently many people had already stumbled onto the same secret, that this line of clothing was going to be a success, yet while many made their profit from re-selling the items on eBay, the author cashed in by investing in the store’s stock – and claims to have ‘almost’ tripled his money in about 48 hours. All these people had information, but while some profited by re-selling, others, like the author, made easier money by thinking bigger, or at least differently.

The author also has some thoughts on how to handle risk. He says:

People are generally risk-adverse with their money. I think all humans have a hard-wired aversion to losing money, and there's a large psychological barrier to overcome with risking your money on a stock trade or a leverage options trade. So one of the things that I teach prior to even thinking about finding the next big thing is learning how to compartmentalize your finances.

Most of us have a spending account. Many of us have a savings account, which could include a retirement account. And that's money that we count on to retire with, and to get rich slowly over the course of our life. But what few of us have is what I call a big money account. So I encourage all people to view every dollar in their life as a potential hundred dollars for its full future potential investment value. And when you start to look at everything in your life, every dollar bill as a hundred dollars, it uncovers all types of money that all of a sudden you might be willing to put into your big money account. For example, you might really appreciate getting all the sleep you can on the weekends, so you might hire someone to mow your lawn. However, if you view that $20 as a potential $2,000 for its full investment potential, that might persuade you to go out and mow your own lawn, to take that $20 and put it into your big money account. Now you have an account that you're willing to take risks with, that you're willing to make leverage investments with.
I have written before on this subject, and when your trading or betting bank is not money that is ring-fenced from your daily, weekly, monthly or even annual needs, you are not going to make the best decisions.

Finally, a quick comment on Green Pullover. As much as I enjoy some friendly competition with him, would he please stick to trying to beat me at draw finding rather than keep selecting Crystal Palace to win. Single-handedly, he is ruining that wonderful club's chances of playing Premier League football next season. Stop it!


laidback said...

Sorry about tipping Palace as I share your pain every time they lose (even other than financially). My dad, who sadly departed this Earth a couple of years before their famous 1990 F A Cup run, was born in South London and was a Palace supporter all his life. After my own club (Derby) they're always the first team whose result I look for.

Griff said...

Good afternoon,

My EPL draws for the weekend are:

Aston Villa v Norwich
Blackburn v Chelsea